The Peak Oil Crisis: Connecting the dots

Earlier this week oil closed above $100 a barrel for the first time. To make matters worse, wholesale gasoline and heating oil jumped 11 cents a gallon in a single day to their all-time highs. A lot of bad news triggered the increase of nearly $14 a barrel in the last two weeks. A 70,000 b/d refinery in Texas blew up and may take months to repair; floods, snowstorms, and power outages have the world’s coal markets breaking records; and to top it off OPEC is threatening to cut oil production, either officially or unofficially, because OECD stockpiles crept up a bit in January. When you can get $100 for every barrel exported you might as well save some for the grandchildren, because you sure don’t need the money.
Now many traders are saying that $100 oil is just a short-lived speculative binge. The fundamentals don’t justify it and oil will soon be back to its “proper price” of $85 a barrel. Note how the “proper price” keeps moving up. Few talk of $40, $50, or $60 oil anymore. Even OPEC says that if oil goes below $85 a barrel, production will be cut until prices go up again. It just shows how easy it is to get used to being richer and richer.

For those who don’t follow such things, world oil production has been essentially flat for the last four years. Asian consumption keeps surging as China’s GDP grows by 10 or 11 percent each year. Domestic consumption in most oil exporting states, primarily Russia and Middle East is also growing rapidly. US and European consumption is growing slowly, so the difference between flat production and increasing demand is being made up by reduced consumption in the poorer nations of Africa, Latin America, and numerous small island states which are heard from occasionally. World stockpiles are also shrinking at a measured pace. As a world, we are burning more oil than we are producing.

Falls Church News Press